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U.S. inflation data fuels bets of Fed rate cuts as early as September

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Traders work on the floor during morning trading at the New York Stock Exchange on May 14, 2024.

Spencer Platt | Getty Images

Traders appear increasingly confident that the U.S. Federal Reserve could start cutting interest rates as early as September, after inflation data cooled more than expected in April.

Some analysts, however, are far from convinced.

The consumer price index (CPI), a broad measure of how much goods and services cost at the cash register, increased 0.3% from March, the Labor Department’s Bureau of Labor Statistics reported Wednesday. That was slightly below a Dow Jones estimate of 0.4%.

The softer-than-expected data on Wednesday propelled stocks to fresh record highs and fueled speculation about how soon the Fed could be prepared to begin cutting rates.

Traders are currently pricing in a roughly 70% chance of a U.S. rate cut in September, according to the CME FedWatch Tool. That marks a sharp increase, compared to earlier in the week.

Jerome Schneider, head of short-term portfolio management at PIMCO, said on Thursday that the latest U.S. inflation data confirmed to investors that the potential for a near-term rate hike was now “off the table.”

“I think more contextually, we have to really understand that we have celebrated a lower inflation rate, the market has. But, in context, at PIMCO we’re specifically thinking about the longer-term trajectory of how the Fed is going to react to this data,” Schneider told CNBC’s “Squawk Box Europe.”

“More importantly when you look [at] … what is going on within the segments of CPI and the [Personal Consumption Expenditures Price Index], the more prevalent inflation indicator for the Federal Reserve, it still remains relatively resilient. In fact, to get below a 3% number in those core figures, we’re going to have to see prints over the course of the remainder of the year of 0.2% or lower. Right now, we’re still well above that,” Schneider said.

“Yes, perhaps it’s some relief upon a higher inflation print, but in the context of getting closer to the Federal Reserve’s target that they want to get to so quickly, it is probably unlikely at this point in time,” he added.

Softer data

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